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Decomposing the Redistributive Effect of Taxation to Reveal Axiom Violations

Simone Pellegrino () and Achille Vernizzi ()

No 49, Working papers from Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino

Abstract: In this paper we propose two alternative strategies in order to decompose the redistributive effect of the personal income tax in the portion due to deductions, marginal tax rates and tax credits. The first one, inspired by the analysis by Lambert (2001), Pfahler (1990) and Onrubia et al. (2014), is a stepwise or "ex ante" decomposition, whilst the second strategy, inspired by the works by Podder (1993a,b) and Podder and Chatterjee (2002), is an overall and simultaneous or "ex post" decomposition. The value added of our approaches is twofold: they are very simple and intuitive, and, moreover, both of them allow to quantify the Axiom violations, as proposed by Kakwani and Lambert (1998), for each part in which the redistributive effect can be decomposed. We take Italy as a case study.

Keywords: Personal income tax; Microsimulation models; Reynolds-Smolensky index; Pfahler decomposition; Kakwani and Lambert decomposition. (search for similar items in EconPapers)
JEL-codes: C80 H23 H24 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pbe
Date: 2018-03
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